Chief executive Stephen Haddrill discussed the major points of the FRC’s report, Developments in Audit 2018, paying attention to the wider implications of the report in a year that had seen significant media coverage of the audit market and considerable public pressure for reform.

‘Nothing damages trust and confidence in business more than a company failing soon after it is provided assurances of its good health,’ he said. ‘We have certainly seen that during the course of this year.’

‘Audit should play a stronger part along the directors in stopping this happening. The FRC is therefore reviewing both the quality of existing work by auditors on the company’s going concern viability statements and we intend to consult soon on whether the audit standards should be strengthened in these areas’. He also said that ‘far-reaching audit reform in the UK is an ambitious project’.

A discussion panel between Eugenia Jackson, director of Allianz Global Investors, Nick Land, independent non-executive and FRC Board member, and Jon Seaman, a partner at Mazars, saw three different perspectives of the audit sector express their views.

‘For me the profession is at a crossroads’, said Seaman. Confidence in audit had dropped and there was ‘certainly a perception that audit quality has dropped’. He argued that this was because many audits are now carried out in a wider environment than in the past and that interpreting the data is a complex task with significant room for error: ‘I think you need to put this in the context of globalisation. Business models are far more complex than they have ever been before.’

He did note that ‘How can we demonstrate professional scepticism, and how can we really build that into the culture of the firm? This is one of the challenges facing the profession - how can you build this into the culture and teach it to trainees?’ He admitted that ‘there does need to be change - the question is how that is done.’

Jackson argued that engagement with auditing was still in limited in the UK market. ‘Audit is still a black box to outsiders,’ she said. Stakeholders ‘rely on audit committees to assure [them] of the quality of audits,’ but she did believe that ‘the disclosure around audit has improved over the last few years’. ‘It is definitely true that more companies are volunteering that their audit committees can meet with stakeholders’.

Land, having retired as Chairman of EY in 2006, described himself as ‘poacher turned gamekeeper’ and said that changes to tendering rules has had ‘a significant impact in terms of audit quality’ but believed that in terms of reforming the audit market, the Big Four were ‘ very resistant to change…in the past when push came to shove they very much wanted to minimise change’. He said that ‘whatever might be done to expand competition…we will go through a stage where we risk audit quality’.

He said that much of the difficulty in reforming the audit market was in the response from firms. Audit firms, he said, will adopt change ‘as long as it does not affect the profit and loss account’. They have to ‘join in on finding the answer and not just sit there waiting for something to be done to them’.

Sir Win Bischoff, who closed proceedings, made the case that auditing, and the audit market, needed to be viewed in a wider context. ‘Audit is held responsible for some of the things that have gone wrong,’ he said. ‘Those of us who have sat on boards know that there is more to it than that’. He also wished to stress the positive aspects of the audit market. ‘We need to be mindful of the non-audit side - the contribution that accountancy and auditors have made to the UK economy.’

Report by James Bunney